Just before Congress entered its August recess, Reps. Brad Miller, D-N.C., and Keith Ellison, D-Minn., both members of the House Financial Services Committee, introduced legislation that would prohibit servicers from owning debt secured by a home that secures a mortgage that they service. The second mortgages, in such circumstances, create a conflict of interest for servicers, Miller and Ellison say.
A press release from the congressmen notes that two-thirds of all distressed mortgages are now serviced by the four largest banks – Bank of America, Wells Fargo, Chase and Citibank. These banks own about $477 billion in second liens.
‘The obvious conflict of interest between the investors and servicers may well be a factor in the failure of servicers to modify mortgages voluntarily,’ Ellison says.
The congressmen say the bill would give servicers ‘a reasonable time’ to divest themselves either of any interests in home mortgages, or the authority to service mortgages. Miller and Ellison say the likely outcome would be that the four biggest banks would spin off their mortgage servicing business, resolving the conflict of interest between the servicer and investors.
SOURCE: Office of Rep. Brad Miller